Can you save 2 million dollars in forty-fifty years?

[MadHound]

$2,000,000. That's the number that experts are now saying that people will have to save over the course of their careers in order to retire comfortably.

"Retirement won't be impossible for Generations X and Y, but they will need to save considerably more than the baby boomers to make up for less employer and government help. Fewer young people have access to generous retirement benefits, including traditional pensions and retiree health insurance. And anyone born in 1960 or later must wait an extra year, until age 67, to claim the full amount of Social Security they are entitled to. Those who claim at the same age their parents did will get less. Here are some ways 20- and 30-somethings can get on track to retire comfortably."
<http://finance.yahoo.com/retirement/article/113507/generation-y-2-million-dollar-retirement-usnews?mod=oneclick>

I find it interesting how they slip in the notion of working until you're seventy now. Also slipping in the idea that you've got to be making an eight percent return on your investments. You're not going to get that kind of return with any sort of safe, stable investment, so that means throwing your money out on the gambling table that is Wall St. And of course, nobody loses money on Wall St., no, never ever:eyes:

And of course, this is all assuming that Social Security and Medicare are going to be around to help us out.

About the only solid piece of advice I see in this piece is getting a Roth IRA.

Another fantasy piece, a fantasy that is going to turn into a nightmare for many.

[undeterred]

1. Save $2M? I can't even find a job.

[LadyInAZ]

44. lol.. i know what you mean...

how about a post on job market opened.... lol

[patrick t. cakes]

57. lol

no shit. +1

[trueblue2007]

72. whoever is saying you need 2 million dollars to be comfortable IS LYING

YOU DON'T NEED THAT MUCH MONEY!!!!

[baldguy]

2. That's *saving* $40k per year. Median personal income is $32k per year.

[Tesha]

4. You seem to be assuming no interest/investment growth.

Over 45 years, that's probably not true.

Tesha

[baldguy]

11. Less than half of American households own equities in some form.

Most people won't see any growth in their investments - because they don't have any, because they can't afford them.

[Johnson20]

21. Humm

Then I wounder where retirement funds, public or private have their money? Under mattresses?

[DrunkenBoat]

25. You might ask what percent of the workforce *has* a retirement fund.

[baldguy]

29. Only the people that *really* matter.

The majority can go to hell.

[Johnson20]

32. Good question.

I would like to know that figure myself, but we can't just automatically assume that only the rich have a vested interest in the"market." IMO there are also millions and millions of so called "little people" (not my words) who are "into" the market in one way or the other, rather they may realize it or not.

My wife taught school for 30 years and only had a glimmer of what her money was going into.

[Tesha]

39. If she's part of *ANY* retirement fund, she's "in the market".

Most people are, whether Baldguy wants to admit it or not.

Tesha

[Johnson20]

54. Yes, I know and I

took care of it for her. She slowly awakened to the fact that she was in the market during here last 10 years or so.

Best Tesha

[Tesha]

40. (Duplicate removed by author)

[enlightenment]

31. Thank you.

The persistent idea that everyone has investments or has some kind of equity is really annoying. The blather of those who have probably never really had to worry too much about making the bills each month.

Comfortable doesn't mean wealthy of course, but it does mean that financial worries can shift to things like 'will my investments continue to improve' instead of 'will I be able to pay the rent this month'.

[Tesha]

41. Thanks for the personal attack ("blather")

Mr. Tesha and I both started in the blue-collar world and among the two
of us, we have three retirement accounts that date from those days.

Since then, we've acquired two small 401(k)s and could have had a
third.

Even in these shitty days, lots of jobs still offer the opportunity to
contribute to some sort of retirement account.

Tesha

[Johnson20]

55. Tesha I'm rather new here, but

I am absolutely amazed at some of the outrageous statements made by some folks her without any facts or basis. Makes it sound like you and Mr Tesha never worked or struggled.

[DrunkenBoat]

61. "Blather" isn't a personal attack. A personal attack attacks the *person*. Criticizing or

even dismissing someone's opinions *isn't* a personal attack.

Personal attack is along the lines of "Your mother wears army boots," or "You are a conspiracy theorist."

I learned that in public school.

[Tesha]

63. If you think that's the case, try calling someone's opinions "bullshit".

(that is, a step or two up from "blather").
Your post will vanish.

Clue:

Blather: Verb: Talk long-windedly without making very
much sense: "she began blathering on about spirituality";
"stop your blathering".

It's a personal attack, albeit a mild one.

Tesha

[Trillo]

75. "because they can't afford them" -- Not the only reason.

Equities, rather stock ownership, today, represent national and extra-national financial corruption. Another, roughly equivalent phrase could be "represent corporatism".

Remove corporate personhood, and the ability of money to fund politicians, and that corruption is removed.

[0rganism]

66. if you put in $10000/year at 6.8% interest over 40 years, you get there

but I doubt a lot of folks have that kind of money ready to invest

Let's say most folks can get 7% annual interest with a standard retirement investment package, and do this over 40 years. That's still $9380 per year to make about 2 megabucks. Given median income of less than $40000/year, a lot of people are going to come up short.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm using the optimistic "make additions at the start of the compounding cycle"

Supposing a forward-thinking 45 years of steady investment at 7% annual: $6600/year

OK, now let's model it a bit more realistically. Say Joe Sixpack makes $32000/year, after taxes. He diligently sets aside an average of $2000/year for his retirement, and he starts when he's about 30, leaving about 40 years of steady investment before he retires in his old age. How high an annual % return does he need to hit the magic $2000000 mark? at least 12.5%, from what I'm seeing, plus this has to be safe enough investment that a sudden economic downturn won't wipe out his nest-egg in the last decade.

What safe investment strategy lands Joe with a 12.5% APR?

Using the modest 7% annual ROI, Joe ends up with $437219. Guess he'd better set his expectations pretty low...

[geckosfeet]

3. Simple math. For round numbers assume $50k per year. In 50 years you have earned $2.5 million.

I you don't spend any of it, and avoid paying any taxes, well, you have $2.5 million.

If you are taxed at 30%, you have $1.75 million left over. Still a nice nest egg.

Let us further assume you rented a very modest apartment for $500 month ($6k/y) rather than living on the street for those 50 ($300k) years. Now you $1.45 million left.

Let us make one further simplifying assumption - that your expenses for food, clothing, health care, utilities, transportation, entertainment etc. etc. come to $500 a month as well.

You now have $1.15 million! Hooray!


But let us now be more real world.
Rent $1k/m = $12k/y = $600k/50y
Expenses $1k/m = $12k/y = $600k/50y

Now you have $550k left. Still a tidy sum. If you invest wisely and are lucky you could average 5% compounded interest over those 50 years and eek out little more.

Disclaimer: Round numbers used to simplify math - your mileage may vary - our numbers may be way off and imaginary for promotional purposes but we still want you to buy our product and trust us implicitly with your welfare and well being. We have the governments stamp of approval to run our business like this so you know can trust us. :evilgrin:

on edit: clarified disclaimer language :)

[Zoeisright]

5. Now let's add ...

Health insurance. $1k/m = $12k/y = $600K/50 yr.

Now you're $50k in the hole.

[geckosfeet]

9. We optimistically assume you have health insurance through your employer

and that you have monthly contributions of about $200 a month. Office visits, copays, drugs, medical equipment/supplies were not explicitly included to simplify the calculation.

Disclaimer: As noted in the previous disclaimer - these numbers are provided to create a false sense of optimism and hope. Your real situation is much worse. However we have the governments permission to promote ourselves with misleading data and scenarios.

[Proud Public Servant]

6. Excel has a formula for this

Assuming a long-term rate of return of 6%, 40 years of work, and a monthly paycheck (hence monthly compounding of return), you would need to save $1004.27/month (12,051.24/year) to get to $2,000,000. That also assumes you're using a tax-deferred instrument to save.

[LiberalFighter]

8. I don't see anyone able to save 25% of their income to make that happen.

Unless, they receive outrageous income.

How many start saving for their pension from year one?

[Proud Public Servant]

10. Agreed

Particularly because the most crucial aspect of retirement savings is starting early. If you don't start with that $1,000/month rigt away, you're unlikely to ever make it up, even if you could contribute double that about at mid-career. The young (my daughter included) are screwed.

[Capitalocracy]

53. I have yet to start making much more than $1000/month.

I don't see it as possible. Maybe I'm just a loser.

[geckosfeet]

12. That $12k per year 'savings' exceeds some peoples income.

I don't think the excel formula includes broker and management fees but I suppose they lump that into the 6% rate.

Also must consider whether you are using the 401k model and you will be taxed upon withdrawl.

[Marrah_G]

79. I can't imagine being able to save 1k a month.

or a year........ some emergency always comes along and whamo....saving are gone.

[TreasonousBastard]

16. The article claims that's what you need, not what you can get...

and never has everyone been able to save for a decent retirement.

However, aside from the house, which has historically been the primary savings for a lot of people, many companies still match employee savings. Last time I was in one of those plans they matched up to 3% of my pay with company stock, effectively doubling my own contribution-- and not every company is an Enron.

[LiberalFighter]

46. I had a 401k and the company did not match anything.

[Fool Count]

62. You can forget about 6% rate of return for the next 30 years at least.

It is possible that we will not see average long-term inflation-adjusted return of 6% ever again.
There is certainly no law of nature which guarantees it.

[LiberalFighter]

7. The numbers don't look right to me.

If one lives 20 years after they retire that $2 million comes out to over $8,250 a month. What voodoo magic are they using?

[nomb]

13. Everyone is missing the time value of money.....

http://www.financeprofessor.com/financenotes/timevalueofmoney.htm

And here's a calculator, it's the first one:

http://www.easysurf.cc/vfpt2.htm


An overview:


http://www.investopedia.com/articles/03/082703.asp#axzz1YDMdR2zu


And finally, that 45 years is for someone just entering the workforce, and the guess about the final number? Just that, a guess.

[TreasonousBastard]

14. 12 grand a year savings at 5% annually gets you 2 million in...

45 years. Any simple sinking fund calculator will get you that far.

But, over half the population owns a house, so you can figure that for maybe half that two million by then, cutting your cash savings down to six grand a year.

This is, of course, assuming that things wander off into the future as they always have, and there's no guarantee of that. But, if you're going to plan for he future, you have to make some basic assumptions.

[nomb]

15. Have you calc'd in wage inflation? Does the 2M final figure allow for COLA?

People are, on the whole, completely unqualified to run their own pensions - and society trying to shift that responsibility to the individual is potentially ruinous.

[TreasonousBastard]

18. Just the money you need for the result, but...

you don't have to start with the 12 grand a year-- work up to it and pile more money in when you make more.

It's rally no so hard. If your job has an IRA, 401K, or any such throw money in there if the people managing it look OK. Throw the max in there if they match it. Find a decent growth fund and throw some in there. Interest rates will go up at some time, so long-term CD's will make senses again. And there's always some sort of federal bond being sold. Extra cash, and only extra cash, can be thrown into speculative investments.

And don't forget your house-- that's probably where most of your money will end up.

It's not so hard. The hard part is making enough to begin with and making up your mind to save.

[joeglow3]

77. I told EVERY new grad we had to put at least 15% in their 401(k)

I told them that they are used to living off of shit in college and they will still feel like they are living like a king. However, put nothing in, and you get used to that higher cost of living and will find it near impossible to recover. Needless to say, very few did it. THIS is what pisses me off about this issue. These are people who should have little concern with retirement, but choose to blow their money on toys and ultimately take money away from those truly poor.

[proud2BlibKansan]

17. My mom grew 1K into a million in 10 years

She and my dad lived poor. One car. Never bought anything not on sale. Saved and invested every dime they could.

Of course they also had free health insurance for the family, great job security and a house payment that didn't take an entire paycheck.

Couldn't do this today in this economy.

[nomb]

19. What part of that was stock market returns? Just out of curiosity? What is the current value?

It's a data point, just your families experience.

But it is always interesting to see what generated the better than average return.

[proud2BlibKansan]

22. It was all stock

I realize it's just a data point. Just stating it WAS once possible.

[nomb]

27. ty, I was only curious, I never doubted the veracity and only sought to frame my q as minor, thanks

[enough]

20. That must have been a very interesting 10 years. What decade was that where 1K grew to 1 million?

What did she have it invested in?

[proud2BlibKansan]

24. Mainly 70s

Lots of energy stock. She also watched fads. If one of her kids wanted something our friends had, she bought stock in the company. I remember her buying stock in early video games. I also remember her coming into our bedrooms and looking at the labels on our record albums so she could buy stock in those companies.

She also bought and sold all the time. If a stock didn't do well quickly she got rid of it.

[n2doc]

35. Sounds like she could have been a very successful hedge fund manager in a different time

However, that's not a viable alternative for 99.9 % of us. My mom was also really into investing in the 70's, and basically broke even. It takes a special skill.

[proud2BlibKansan]

36. It also isn't very realistic in this economy.

[TBF]

23. Same with my in-laws - their home value increased rapidly and they were very frugal.

It was a case of picking and choosing. They would save up for things like a big family vacation every 4-5 years, but scrimp on many smaller things. At retirement they had about 2 million and half of that was gone after living an additional 20 years. They did continue to travel to see family, but it is amazing how much medical care (especially prescriptions) cost - that is where alot of the money went.

And, as you said, I find it very hard to believe my husband and I will be able to do the same given today's economy.

[SmileyRose]

30. My Dad did the same thing.

He passed away before the latest economic debacle and even then he said there's no way my generation or the ones behind us could do the same thing. Too many living expenses are coming out of our paychecks instead of our benefits.

[DCBob]

26. That would equate to about 1 percent of the population.

absurd.

[raouldukelives]

28. Just keep investing

The returns you get from war profiteers, destruction of the environment and child labor will eventually offer you a slightly more comfortable retirement. Kudos!

[Swede]

33. Start a small monthly PAC contribution in a good mutual fund.

Some allow as little as $25 per month. Start when you're young.

[Frustratedlady]

34. Run for a position in congress. They make millions a lot sooner than 40 years.

Talk about a racket.

[Juche]

37. I just saw that this morning, it depressed me

To be fair, whenever you see an article like that the people who write it and recommend saving 2 million make a living managing money and take 2-5% off the top. So the people saying you need to have 2 million in the bank want you to do that so they can take 40-100k off the top (2-5%).

Also, that article is stupid. If you retire at 70, life expectancy 40+ years in the future will likely be 87 or so starting at age 70. Why would you need 2 million to survive for 17 years? That works out to about 120k a year even if all your money does is adjust for inflation and doesn't grow, not including SS.

I don't know what I'll do. I really worry my body will fall apart in my 50s and I won't be able to earn, save or invest anymore.

I have 2 goals for retirement

1. Own a duplex that I have paid outright in the sticks, put solar panels up on it and buy an electric car (this'll be 30+ years into the future). I figure that'll eliminate mortgage, car payments, electricity and fuel costs while also giving me some rental money from the other half of the duplex. That'll let me cut my living costs down drastically.

2. Move to latin america or southeast asia where you can live comfortably on $1000/month or so, and that includes health care. Who knows if that'll be the case 30 years from now though.

[taught_me_patience]

38. My goal is 5 million

but I've only got 25-30 years left, so I'll probably come in around $3MM by retirement (about $3000/yr at 6% return). I don't see why you need that much if you have your house paid off. I'll also have 4-5 rental homes to help augment my income in retirement. I can see why $2MM is nearly impossible for many Americans.

[uncle ray]

42. yeah, it's impossible because you own their houses.

i guess we need to make it harder for you to own them and easier for those you rent to to buy their first homes.

[coalition_unwilling]

43. Oh, snap! Appreciated, though! - n/t

[Capitalocracy]

50. Not every renter is an evil slum lord, man

But people need to be paid enough that they can buy their own homes. There's the problem... too many people aren't earning close to a living wage.

[taught_me_patience]

59. Anybody that has all their retirement in stocks and bonds is a fool

It's critical to diversify with real estate, precious metals, land, cash, and maybe a couple of collectables.

Those that can afford to rent my property can afford their own homes. They chose to rent for other reasons like they might move in the future or they are starting a family and their life situation will change in a year or so, or are older and downsizing.

[SOS]

48. Is anything paying a 6% these days?

If you know of something, please share.
I'm looking to invest a small sum and can't find anything at 6%.

[taught_me_patience]

58. Yes

We are heavily invested in California Munis yielding 7% tax free in our post tax accounts. We're also in natural gas MLP (master limited partnerships)like SPH and APU that are yielding 7%.

edit:

Of course all investments have risk. Cali might go teats (not that likely) and the MLPs can lose share price.

[SOS]

73. Thanks

It seems bonds are the way to go these days.
Will be doing more research before I leap.

[Swede]

78. Have you checked out Morningstar?

Check it out. It's free to join. You can check 10 year and 5 year returns on different funds.


http://www.morningstar.com/Cover/Funds.aspx

[mainer]

45. it depends on your definition of "retire comfortably."

If you want lavish vacations, then yeah.

[Retrograde]

47. If you manage to do, though, you'll fail the "means test"

and get no or much reduced Social Security and Medicare - if it's still around.

I'm all for saving as much as possible: pensions are a thing of the past in most cases. But first you need to have a job that pays enough more than the basics so you can save.

[Capitalocracy]

49. If I spent zero dollars...

I wouldn't even reach half a million in 45 years at the rate I'm going now.

[Shandris]

51. In 1994 I met a Southern businessman...

...and arguably the only 'true' businessman I've ever known and respected (and by true I mean not the kind that was always out to fuck over his customers, took care of his town (he practically owned the whole damn thing!), ate with normal people EVERY SINGLE DAY, treated his employees to lunch -with him- almost every single day, etc. I should mention that many of his employees were hard-working warehouse guys, too -- I'm not talking about a room of corporate execs and maybe a secretary) and he showed me that, if a young person could save a mere $25/week EVERY week, they would be a millionaire long before they retired.

Of course, the one problem with that is very, very seldom does a young person make enough that they can set that $25 aside and not think about it for the next 30 years. Also, I don't know if modern interest rates would still allow that -- his demonstration was at the interest rates (of savings accounts) of the time. Every now and then though...I'm really, REALLY sorry I didn't somehow get even more hungry, or get just a few more hours, or... :(

**I wasn't able to leave where I live or I would have gone to work for that man. As it turns out though, he retired a few years later and his son took over the business. From all indication, he's a VILE, thuggish, delusional dyed-in-the-wool Republican who has run the town, the company, and the employees (what few are left) straight into the ground.

[KillCapitalism]

52. 1,667 years is how long it would take me.

That's saving $100 a month for that many years. $100/month would be about all I could afford to save at my current income level.

Anyway, $2 million is probably good enough if you're retiring NOW. I'm 35 right now, so I'm sure $2 million is not going to cut it by the time I'm 67. By then you'll probably need $12 million or even more.

[SheilaT]

56. First off, the $2m figure assumes you're

going to have what I (and a lot of those here) would consider a very lavish retirement.

Second, it IS possible for most people to save, even a little, each and every week.

Back when I was just starting out I discovered the joys of a company credit union, and had money taken out every week. Let's see, in percentage terms it was about 12% of my pay. At the time I worked for an airline, and the pay scales were known to all. I travelled a lot, took full advantage of the wonderful travel benefits back in the day when flights were rarely full. After a few years fellow employees starting asking, "How can you afford to travel so much?" "I don't own a car," was my consistent reply. True. I took public transportation. Everyone else had a car payment that was at least equal to what I spent on the bus and on travelling around the world.

Some years later, after I was married, my husband's well-off and generous parents gifted us with money every year. We never spent it. We always saved and invested it. Most people would treat that money -- or bonus money from the job -- as money to be spent immediately. We never did.

A few years ago the marriage ended, and I found myself re-entering the workforce after more than twenty-five years. I relocated 800 miles away to start a new life. I have adequate basic skills, but at age 60, I'm not going to have any kind of significant career or make lots of money. I can get entry-level work. So that's what I do. I did temp work for a bit, now work at my local hospital. They fund a 403b (they're a non-profit) to the tune of about 3% of my base pay. I put in about 6% on my own. It's only a few thousand dollars at this point, but every little bit helps. Oh, and the health care benefits are very good.

I plan to stay in the workforce until age 70 -- at least I hope not to start collecting social security until then. Once I'm on medicare, I may consider going back to temp work, just for the variety. Meanwhile, I live quite modestly. I wouldn't mind having more money, mainly because I'd like to travel more, but I appreciate what I have.

It feels very hard to save, but you need to do it first, before anything else. As I once read many years ago, there's always someone down the road who's living on a few thousand dollars a year less than you are. That has stayed with me. I try to live on less, and so far it's been successful.

[3waygeek]

60. My Dad started saving for retirement back in the early 80s

through IRAs & 401k, in addition to a modest employer-provided pension; he worked for one company from 1971 to his retirement in 2008. His salary was pretty good -- around $150K -- but certainly not spectacular. When he retired, just before the crash, he had over $3.5 million. The crash knocked that down a bit, but it's bounced back, so he & Mom are still pretty comfortable.

OTOH, I haven't been able to save much, not that I expect to ever retire.

[ThomWV]

64. I did it and I never had a particularly good job in my life.

Regular savings since the day I went into the Army (1966), and I've always put in in places where it was difficult for me to get at. I retired at the age of 57. I didn't quite hit two million, but I came pretty close. Oh, and it is such a habit that I have never quit, I still have money taken out of my checking account every month to buy shares in several mutual funds.

[WinkyDink]

65. If "you" is generic, then of course some can!

[RebelOne]

67. Maybe if I had thought about retiring 40-50 years ago,

I would have started saving. Unfortunately, I was laid off my job in 2010. I was forced into retirement at age 70. And I only have $31,000 in savings. That should keep from having to eat cat food for a few years. I am also collecting social security, so I should be able to survive until I die in maybe 10 or 15 years.

[Paper Roses]

68. How do you spell 'pfffft'?

[Marrah_G]

69. I'll never be able to retire

Can't save what you don't have and for the working poor, even if you do manage to save a couple hundred bucks something breaks or an emergency happens and down the savings balance goes.

[anarch]

70. LOL. No.

[InvisibleTouch]

71. When I think of all the "frivolous" money I've spent in 40 years...

...and if I imagine that I'd never spent any of it, but had wisely invested it every step of the way, and additionally spent every waking moment frantically trying to rake in more, then yes, I kinda think I could have. Of course that would have meant *never* allowing myself the slightest pleasure or indulgence that wasn't immediately necessary for survival - and that just wouldn't have been worth it.

[HughBeaumont]

74. Well, yes, if you have no landmines in life. AT all.

Right career, you can never have a layoff, you can never have a bad financial emergency, you can never have student loan debt, every financial move you make, every buy and sell and shift to cash and entrance - every move has to be the RIGHT one. That pie-in-the-sky annual rate of return they assume in most financial self-help books isn't happening with regularity in a laissez-fail Boom-Bubble-CRASHfest known as the American economy.

America is no longer time accommodating if a "Plan B" means a relatively quick career switch. We no longer have plants or factories hiring for a living wage on these shores.

The average high schooler would be wise to not only start saving regularly in his/her teens for retirement/home, but consider going into an ever-dwindling field of "recession-proof" (I put that in quotes because everyone here knows those no longer exist) careers whether they like or hate them.

What's funny is that all of the Republican laissez-failists who were fully supportive of just letting a corrupted economic system "do what it do" (a linear system which requires both infinite amounts of capital and resources to thrive in a world where neither one exists) still adamantly refuse to admit the painfully obvious flaws of unfettered capitalism, all while still blaming the victim when even one bad plan-derailing thing happens to them.

[Trillo]

76. Someone on minimum wage would only make a gross of about $2/3 M over a lifetime.

And that's before living expenses.